VivianChu

The U.S. market's disappointment over the Fed's half-point rate cut didn't make it across the Pacific to Japan, whose own central bank earlier in the week cut interest rates to near zero percent.

Japanese financial shares rallied following the Bank of Japan's dramatic about-face on Monday to opt for a "quantitative" easing by targeting an increased level of bank reserves at the central bank. The move should effectively restore zero interest rates in Japan and lower borrowing costs for banks and by extension companies and consumers.

The Japanese market's surge also helped regional bourses such as Hong Kong recover from earlier losses.

In Tokyo, the Nikkei Average soared 7.49 percent, or 912.97 points, at 13,103.94 -- its biggest percentage gain since Nov. 17, 1999. The broader Topix index rose 6.3 percent, to 1,275.41, its fourth straight day of gains.

The market's spurt took investors by surprise. A broker at Tradition Securities in Tokyo cited several reasons for today's surprising climb, including public funds buying and a belief that the BOJ might help banks with their bad loans.

"There was no one reason for the climb but the market has grown slightly more optimistic. One major factor could be foreign investors changing their underweight stance in Japanese stocks," he said. The market might have gotten ahead of itself and the 2.5 percent spike in the closing minutes of trade was hard to explain. Today's climb was "slightly artificial," he added.

Bond prices staged their biggest rally in nearly two years after the Bank of Japan cut interest rates to near zero percent on Monday. The benchmark ten-year bond rose 1.065 to 103.443 as their yields fell 11.5 basis points to 1.045 percent, their biggest drop since April 1999.

In currency dealing, the greenback strengthened to 122.90-93 yen by the Tokyo market close, compared to 122.10-13 at the open. In New York late Tuesday, the dollar fetched 122.19 yen.

Shares rallied across the board, shrugging off comments made by Bank of Japan Governor Masaru Hayami, who told an Upper House budget committee on Wednesday that Japan's economy will likely remain "stagnant" for a while. Among banks, volume leaders Sakura Bank soared 11.8 percent to 637 yen and Tokai Bank
TOKBF
gained 2.3 percent to 450 yen.

Shares of Nissan Motor
NSANY, -0.14%
the volume leader, rose 4.3 percent to 855 yen. On Monday, Nissan announced it would pay its first dividend to shareholders in three years. Shares of Toyota
TM, -0.77%
soared 6.7 percent to 4,650 yen, while Honda
HMC, -0.45%
advanced 5.5 percent.

But shares of video game maker Nintendo
NTDOY, +1.95%
fell 2.4 percent to 20,890. On Wednesday, its hotly hyped Game Boy Advance hit stores in Japan, and most sellers reportedly sold out of the video game within hours.

HK softens; South Korea gains despite gloomy GDP data

Hong Kong's Hang Seng Index ended down 0.52 percent to 13,154.44 after giving up over 2 percent earlier in the day.

"Since Japan closed up over 7 percent, it got a lot of people in Asia concerned that Japan might lead a short-covering rally over the next few days, so people wanted to lock in as much profit as they could," said Tom Gordon, sales trader at Lehman Brothers in Hong Kong.

"What you saw today was short-covering. There is not a lot of money chasing this market right now, and everyone is convinced it has more downside ahead," he said, adding that a weaker Wall Street would cause most Asian markets to trade weaker on Thursday.

Elsewhere in the Asia-Pacific region, most markets were mixed. South Korea's Seoul Composite inched up 0.19 percent to end at 532.59 points, despite a gloomy economic forecast from Finance and Economy Minister Jin Nyum. The country's GDP growth may shrink to under 4 percent if the U.S. and Japan cannot reverse the slowdown in their economies, Jin said on Wednesday. His comments followed Tuesday's announcement by the central bank that South Korea's GDP shrank 0.4 percent in the fourth quarter from the third quarter, its first contraction in two and a half years.

In Australia, the All Ordinaries Index ended virtually flat, down 0.13 percent at 3,170.4. Shares of most active BHP
BHP, -0.17%
extended Tuesday's decline and gave up another half a percent to 20.21 Australian dollars, as investors continued to digest news of its $28 billion merger with U.K. mining firm Billiton (BLT) announced on Monday. Rupert Murdoch's News Corp.
NWS, +0.31%
sank 2.4 percent to 15.99 Australian dollars.

In Taiwan, shares of chip foundry Taiwan Semiconductor Manufacturing Co.
TSM, -1.94%
gave up 1.2 percent to 85 Taiwan dollars, pulling down the Weighted Index 0.34 percent to end at 5,623.42.

Singapore's Straits Times Index ended down 0.21 percent at 1,728 points. New Zealand's NZSE 40 gave up 1.28 percent to end at 2,089.52.

Intraday Data provided by SIX Financial Information and subject to terms of use. Historical and current end-of-day data provided by SIX Financial Information. All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only. Intraday data delayed at least 15 minutes or per exchange requirements.